Question

123. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then

A. at any price above 0G a shortage would occur.
B. 0F represents a price that would result in a surplus of AC.
C. a surplus of GH would occur.
D. 0F represents a price that would result in a shortage of AC.

Answer 1

At any price above 0G, a shortage would occur.

Step-by-step explanation:

According to the diagram, if supply is represented by S1 and demand is represented by D0, then at any price above 0G, a shortage would occur. This is because the quantity supplied at that price would be less than the quantity demanded. The area of consumer surplus, labeled as F, shows that the equilibrium price is lower than what consumers are willing to pay, indicating that there is potential for a shortage at higher prices.